The incidence of local labor demand shocks

Type Working Paper
Title The incidence of local labor demand shocks
Author(s)
Publication (Day/Month/Year) 2011
URL https://core.ac.uk/download/files/153/6613862.pdf
Abstract
Low-skill workers are comparatively immobile: when labor demand slumps in a city, low-skill workers
are disproportionately likely to remain to face declining wages and employment. This paper estimates
the extent to which (falling) housing prices and (rising) social transfers can account for this fact using
a spatial equilibrium model. Nonlinear reduced form estimates of the model using U.S. Census data
document that positive labor demand shocks increase population more than negative shocks reduce
population, this asymmetry is larger for low-skill workers, and such an asymmetry is absent for wages,
housing values, and rental prices. GMM estimates of the full model suggest that the comparative immobility
of low-skill workers is not due to higher mobility costs per se, but rather a lower incidence of adverse
labor demand shocks.

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